You’ve likely heard the phrase “put your money where your mouth is.” But what about your investments? Through an approach known as socially responsible investing, or SRI, a growing number of investors are putting their money in businesses they believe in.
SRI is an approach to choosing investments based on a company’s business practices and revenue sources. Socially responsible investors seek to invest in companies that do business in positive and responsible ways.1 In general, they look for companies that have a positive record on environmental, social justice and corporate governance issues, also known as ESG factors.
Socially responsible investing means different things to different investors. For example, some investors shy away from investing in companies that produce or distribute addictive substances, such as tobacco and alcohol. Other investors actively seek out companies that are developing alternative energy or clean technology solutions. Still others look to invest in companies that promote diversity, fair pay or gender equality.
One driver of the growing movement is the shifting demographics of American investors and the rise of millennials. Roughly nine out of 10 millennials are interested in socially responsible investing, according to a recent study conducted by Morgan Stanley.2 However, socially responsible investing creates opportunities for investors of all ages who want to align their investments with their beliefs and values.
From 2014 to 2016, sustainable, responsible and impact investing enjoyed a growth rate of more than 33 percent, increasing from $6.57 trillion in 2014. As of year-end 2015, more than one out of every five dollars under professional management in the United States was invested using SRI strategies.3
To build a socially responsible portfolio, you can select individual companies with business practices you support, or you can select a socially conscious mutual fund or exchange-traded fund (ETF) that has done the due diligence for you. However, it’s important to remember that just because an investment is considered “socially responsible” doesn’t mean it will provide a good return. Investors should work with their financial advisor to evaluate all factors to determine if the investment is a good fit for their portfolio. As always, diversification and asset allocation are key.
While it may seem like SRI adds complexity to the process of investing, it’s not that different from any other investment approach. You likely already know which social goals are most important to you, so it’s a matter of working with your financial advisor to choose investments that align. It can actually be a helpful way to narrow down the vast array of funds available to those that align with your personal values and financial goals.
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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Neither asset allocation nor diversification assures a profit or protects against a loss in declining markets.
1 “Socially Responsible Investment — SRI.” Investopedia. Accessed December 15, 2017. https://www.investopedia.com/terms/s/sri.asp#ixzz51LtVVPiB
2 “Are Millennials Democratizing Sustainable Investing?” Morgan Stanley. Accessed December 18, 2017. https://www.morganstanley.com/ideas/millennial-sustainable-investing
3 “SRI Basics.” US SIF. Accessed December 15, 2017. https://www.ussif.org/sribasics